Canada Drops the Penny, but Will the U.S.? – NYTimes.com

THE news from north of the border is both trivial and unsettling: they won’t be making shiny new pennies in Canada anymore.

The government in Ottawa has made this decision after years of deliberation, for reasons that would seem to apply equally well in the United States. “Pennies take up too much space on our dressers at home,” Jim Flaherty, the Canadian finance minister, said in a speech last month. A persuasive government brochure put it this way: “We often store them in jars, throw them away in water fountains, or refuse them as change.”

Pennies cost more to produce than they are worth. Yet because of inflation, they are worth so little that many Canadians don’t bother to use them at all.

It’s not very different in New York City. In January, when Starbucks raised the price of a 12-ounce cup of coffee in Manhattan to $2.01, with taxes, many coffee drinkers were appalled — not so much by the cost as by the indignity of needing to fish for pennies. In the intervening weeks, I’ve given up on coins at Starbucks and begun paying for my morning joe electronically.

Do we really need pennies?

The Canadian government doesn’t think so. By the fall, it plans to stop minting them and stop distributing them through banks. It won’t actually ban them, though. Some people have grown so attached to pennies — a penny saved is a penny earned, after all — that they may want to keep using them indefinitely, and they can, the Canadian government says.

But those who can bear to part with their pennies are being encouraged to bring them to banks for eventual melting or to donate them to charities — which will presumably bring them in for melting. Electronic transactions will continue to include cents, while retail sales will be rounded up or down.

Inflation is sometimes cited as a threat whenever small coins are phased out. A $2.01 cup of coffee should be rounded down to $2, while $2.03 should become $2.05, for example, but retailers in the real world might raise prices more than lower them. That could cause a small, one-time inflation burst, says François Velde, an expert on the history of small change.